How To Be Your Clients' Retirement Income Planning Superhero

Retirement income planning is typically associated with baby boomers, but in actuality, planning for retirement is a necessity at all ages of adulthood. While the topic may seem more relevant for older clients, the foundation for retirement should be built at a young age. Although you may position a retirement income discussion differently with a 30-year-old compared to a 55-year-old client, both clients share the same goal: a comfortable, carefree, and pleasurable retirement.

Because of the boomer-retirement era, retirement income education and information can appear to have been commoditized, but this is far from the case. Talented retirement income planners are simply being lost in the sea of get-rich-quick schemes and miseducated advice. Although there are several fundamental necessities for all retirement plans, a successful plan must begin with comprehensive, personal, and ongoing conversations with your clients. Do you feel educated enough to have such in-depth conversations with your clients? If not, you’re not alone. In a recent poll conducted with Investment News, 94% of financial advisors indicated a need to know more about retirement income planning. From strictly your fiduciary responsibility, it’s critical that you increase your knowledge of what is necessary and possible for a successful retirement. Going beyond your responsibility — if you want to be your clients’ lifelong, trusted advisor, you need to bolster your knowledge with a retirement income education.  

Providing your clients with a retirement plan that ensures enough income to cover both needs and desires is just as important as helping them accumulate wealth through their working years. Most people, even your high-net-worth clients, will have to make financial concessions in their working years to accommodate a financially secure and enjoyable retirement. It’s your job to guide clients in a way that helps them both accumulate sufficient assets and ultimately spend/convert those assets into sustainable and optimized retirement income.

Here are two ways you can establish and deepen client trust and become a retirement income plan superhero:

1. Understand the Solutions

Retirement income planning is a relatively new field, and amidst the sea of competing theories, three primary approaches have risen to the top: systematic withdrawal, income flooring, and bucketing (multiple portfolio). Advisors need to be familiar with all three strategies, and pick the one that meets the specific financial and psychological needs of a given client. The chosen approach must then be customized for each individual.

There is no one-size-fits-all retirement solution, and if you’re recommending a generally homogenized plan for all of your clients, you’re doing them a terrible disservice. Even clients with seemingly similar needs should not be given a “boilerplate” plan. Consider these two clients:

Client A is a 39-year-old man earning a $160K annual income. He’s married with two daughters, ages 4 and 6. His wife works as a teacher making a modest income of $45K annually.  

Client B is a 52-year-old man earning between $125K and $150K a year, depending on constantly changing quarterly commissions. His wife’s annual salary is $100K, but has little chance for additional growth. They have three kids in high school: twin daughters in their senior year that are soon to be college-bound, and a 15-year-old freshman son.

At a quick glance, there are many similarities between these two men:

• Both earn a decent living with at least 10-15+ working years remaining
• Both are married with income-earning wives
• Both support multiple children
• Neither have any delusions or intentions of retiring early

At face-value, both clients might benefit from a similar retirement plan. But let’s take a closer look.

Client A’s 4-year-old daughter has a rare but non-life threatening autoimmune disease that will likely require intensive medical assistance for the rest of her life. He and his wife are discussing her leaving the workforce and becoming a full time caregiver, but her medical benefits currently cover the family.  He’s an independent sales consultant with an increasing income potential, but his options for family health insurance are becoming increasingly expensive. When Client A was in college, he made a few unsavory life decisions that resulted in over $100K of legal fees he’s paying off on a monthly basis. Client A and his wife have both been participating in their employer’s retirement plan since entering the workforce in their early 20s.

Client B’s propensity for living beyond the family’s means has caused them some financial hardship, mainly in the name of high interest credit card debt to the tune of $30K. He makes regular payments but continues to spend in a way that’s not allowing those payments to actually chip away at the overall debt. His two older children are fantastic students and athletes, and both have a fairly decent shot at athletic college scholarships that will drastically reduce the overall cost of higher education. His youngest child, however, has never been interested in school, and Client B has a nagging feeling that his son will lack the direction or ambition necessary to move out or secure a steady job post-graduation. The thought of supporting his son after high school is something he’s growing increasingly worried about. Though he and his wife regularly contribute the maximum allowable amount in their retirement plans, they only started doing so when the kids were in middle school and are slightly panicked about being several years behind their peers from a savings standpoint.

Clearly,  with all their surface-level similarities, Clients A and B have very different and complex financial situations that their financial advisor must help them navigate. As their trusted advisor, you need to understand the intricacies of retirement planning nuances and solutions so you can create an action plan best suited for their unique situations. With your current retirement income planning expertise, could you? Are you confident in your ability to be the counsel and support they both need and deserve?

2. Address Risks of Financial Shortfall

Sometimes a dose of facts is the best approach for beginning the conversation about retirement planning. For clients quickly approaching retirement age, it’s likely the hopes, dreams, worries or implications of their situation have already begun to set in. But for younger or middle-age clients in the throes of child-rearing, 50+ hour work weeks and aggressive wealth accumulation goals, thinking about retirement may be the last thing on their minds. Despite their varying levels of concern or inherent relevancy however, facts are facts and data doesn’t lie.

For example, The Employee Benefit Research Institute’s (EBRI) Retirement Readiness Index from 2012 shows an astounding 44 percent of boomers and Gen-Xers are at risk of retirement income shortfall; a shortfall indicates insufficient ability to cover even just basic retirement expenses. What may surprise you most about this statistic is that those at risk aren’t just the middle-class or basic income earners. The data show that almost 17 percent of the top income quartile of Generation X are at risk of a shortfall. Even your most elite high-net-worth clients aren’t protected from jeopardizing their retirement security. Factors like market volatility, longevity/life expectancy, unexpected health crisis, and poor-planning can negatively affect the financial outlook of these clients in the same way these factors impact a more typical investor.

If even the highest earners and most financially well-off investors can face financial trouble during retirement, what does that mean for your more average clients? What kind of future can they anticipate and how can you help them?  

As their trusted advisor, it’s your responsibility to not only help clients create a plan to navigate the potentially rough waters of retirement years but also to understand and suggest preventative measures to help them avoid problems that could arise otherwise. Here are just a few of the priority topics you need to address with your clients early and often to ensure effective retirement income is established:

• Comprehensive health insurance coverage
• Funding to address long-term care (LTC) needs
• Pre- and post-retirement residency/housing accommodations expenses
• Annuities vs. systematic withdrawals
• Maximizing Social Security benefits
• Lifestyle and leisure expectations pre and post retirement
• Family health history and current health assessments
• Charitable and altruistic desires
• Legacy planning goals

Note that this shouldn’t be a one-time conversation, but an ongoing dialogue as their situation will likely change and evolve over the years you work with them.

When you talk about your clients’ realities in a proactive way, the conversation about potential financial risks and shortfalls is natural, organically occurring and helpful, rather than scary, intimidating or offensive. But if you wait too long to create a retirement income plan — so long that preventing or mitigating these impending financial shortfalls is near impossible — you’ll not only lose the trust and confidence of your clients, but risk losing your clients’ business and referrals as well.

Professionally, maybe you’re not striving to be labled as a "superhero", but what about "successful", "trusted", "expert", "knowledgeable" and "confident"?  Are those the kinds of words you hope describe you and the practice you’re building? If so, becoming well-versed and educated about retirement income planning must be a priority.

Please use The American College of Financial Services' complimentary resource,"The Guide to Being a Successful Retirement Income Planner," as a checklist to help diagnose the areas of retirement planning you should focus on to be the best possible resource for your clients.